The unemployment rate jumped to 6.7 per cent in the March quarter as the economy continued its plodding, job-poor recovery.

Though the number of people employed rose by 9000, or 0.4 per cent, all the increase and more was in part-timers (up 13,000). For the second quarter in a row, full-time employment fell, by 3000.

And outside Canterbury the number of hours worked fell, after a sharp fall in the previous quarter.

The increase in the unemployment rate to 6.7 per cent from 6.4 per cent in the December quarter - itself revised up from the 6.3 per cent reported three months ago - was unexpected. The consensus of market economists and the Reserve Bank's forecast had been 6.3 per cent.


Some of it can be explained by a jump in the participation rate, which is the proportion of the working age population either employed or actively seeking work (a condition of being counted as unemployed by the statisticians).

However, the unemployment rate has wobbled around a flat trend rate of 6.5 per cent for three years now. That just reflected the feebleness of the recovery, Deutsche Bank chief economist Darren Gibbs said.

Surveyed hiring intentions and job advertisements indicated there might be some pick-up in employment in the very near term, "but if anything, we have already had a lot of positives. We are now on the back side of a commodity boom. We are on the cusp of substantial fiscal tightening. And the Rugby World Cup has come and gone," Gibbs said. "We are going to need the Christchurch rebuild just to get economic growth up to something respectable."

ASB economist Jane Turner said that outside Canterbury the labour market recovery appeared to be losing momentum.

Employment fell 0.3 per cent over the quarter outside Canterbury, and hours worked in the rest of the country have fallen sharply over the past two quarters - declines of 1.3 per cent and 1.2 per cent.

"This fall in hours worked has coincided with a decline in full-time employment and a corresponding increase in part-time employment. This suggests activity may be underperforming businesses expectations, and has resulted in their reducing staff hours."

ASB has joined the growing number of forecasters expecting it will be March next year before the Reserve Bank starts to raise the official cash rate.

Westpac chief economist Dominick Stephens said that though parts of the labour market had come back to life, notably in the construction and real estate-related sectors, employment conditions in other areas, such as retail, remained soggy.

"Over time, we expect the boost to jobs from construction activity and a strengthening housing market to get stronger, leading to a fall in unemployment and contributing to rising inflation pressures. However, we clearly aren't there yet."

When combined with further falls in commodity prices and a stubbornly high exchange rate, the weak labour market increased the risk that the Reserve Bank could cut the OCR this year.

"That said, we still regard that risk as less than 50 per cent. Our central expectation remains for the OCR to stay on hold until March 2013," Stephens said.

The jump in unemployment was the third major piece of data since the March monetary policy statement to have been much weaker than the central bank had expected - the others being December quarter gross domestic product and March quarter inflation.